Question

Esperado Furnishings are retailers who purchase and sell household furnishings, including table lamps. The business uses a perpetual inventory system and adjusts cost of goods sold for any shortage or excess inventory. The business began the last quarter of 2018 with merchandise inventory of 10 pairs of “Italia” table lamps at a total cost of $168,200.

The following transactions, relating to the “Italia” brand were completed during the quarter: October 5 Purchased 15 pairs of lamps at a cost of $17,020 per pair. October 14 Sold 18 pairs of lamps to Muller Furnishings at $22,250 per pair October 22 Purchased 24 pairs at a cost of $18,175 per pair but the supplier gave a 4% quantity discount. November 10 Sold 15 pairs of lamps to Orion Household Ltd and 10 pairs to Brown’s Furnishings which yielded total sales revenue of $589,750. November 12 Owing to an increased demand for this product, 30 pairs of lamps were purchased on account at a cost of $17,612 per pair. In addition, Esperado paid $288 in cash on each pair of lamps to have the inventory shipped from the vendor’s warehouse to Esperado’s showroom. November 27 Sold 23 pairs of lamps to Middletown Company at a price of $25,080 per pair. November 30 An actual count of inventory was carried out which revealed that there were 15 pairs of the “Italia” brand in the warehouse. December 2 In preparation for the festive season, Esperado purchased 25 pairs of lamps at a total cost of $474,500. December 15 5 pairs of the lamps purchased on December 2 were returned to the supplier, as they were not of the brand ordered. December 30 Sold 22 pairs of lamps to two customers (Omega Traders & Middleton Furnishings) at a selling price of $26,550 per pair. All purchases were on account and received on the dates stated. Required:

1. iv) Assuming that Esperado sold 86 pairs of “Italia” brand of lamps during the quarter; determine the value of ending inventory and cost of goods sold assuming the business used the periodic system and the LIFO method? (5 m

Answer 1

Value of Ending Inventory under LIFO method
Date	Particulars	Receipts	Issued	Balance
Qty (pairs)	Rate per pair	Amount($)	Qty (pairs)	Rate per pair	Amount($)	Qty (pairs)	Rate per pair	Amount($)
	Opening stock	10	16,820	168,200				10	16,820	168,200
5-Oct	Purchases	15	17,020	255,300				10	16,820	168,200
								15	17,020	255,300
14-Oct	Sales				15	17,020	255,300	7	16,820	117,740
					3	16,820	50,460
22-Oct	Purchases	24	17,448	418,752				7	16,820	117,740
								24	17,448	418,752
10-Nov	Sales				24	17,448	418,752	6	16,820	100,920
					1	16,820	16,820
12-Nov	Purchases	30	17,900	537,000				6	16,820	100,920
								30	17,900	537,000
27-Nov	Sales				23	17,900	411,700	6	16,820	100,920
								7	17,900	125,300
30-Nov	Sales return	2	16,820	33,640				8	16,820	134,560
								7	17,900	125,300
2-Dec	Purchases	25	18,980	474,500				8	16,820	134,560
								7	17,900	125,300
								25	18,980	474,500
15-Dec	Return				5	18,980	94,900	8	16,820	134,560
								7	17,900	125,300
								20	18,980	379,600
30-Dec	Sales				20	18,980	379,600	8	16,820	134,560
					2	17,900	35,800	5	17,900	89,500
		106		1,887,392	93		1,663,332	13		224,060
Value of ending inventory => $ 224,060 (13 pairs)

Cost of Goods sold (see note no.3)

Date	Qty (pairs)	Rate per pair	Amount($)
14-Oct	15	17,020	255,300
	3	16,820	50,460
10-Nov	24	17,448	418,752
	1	16,820	16,820
27-Nov	23	17,900	411,700
30-Nov	-2	16,820	-33,640
30-Dec	20	18,980	379,600
	2	17,900	35,800
Total	86		1,534,792

Notes

1.For purchases made on 22st october, It is assumed that the Inventory account would be debited net off discount of 4%.Hence, Cost per pair would be (18175 x 96%=17448)

2.The cost of inventory would also include the cost of transportation, Hence the cost per pair purhased on 12th November would be 17,900 (17612 + 288)

3.Since on 30th novemebr actual count of inventory revealed 15 pairs of stock in the warehouse it has been assumed that the sales of opening stock made on 14-oct were returned and not recorded in the books. The same has been recorded after stock count. There is actual sales of 88 pairs of stock whereas in the question cost of goods sold for 86 pairs only is required hence the difference of 2 is considered as sales return this difference can be inferred to be the excess stock found after physical count of inventory (15-13).